VW Group CEO Herbert Diess steps down; Porsche’s Oliver Blume named successor

FRANKFURT -- Volkswagen Group ousted CEO Herbert Diess and Porsche boss Oliver Blume will take over in the role, VW said on Friday, in a surprise shake-up atop the world's second-biggest automaker.

Diess is resigning "by mutual agreement," VW said. But a supervisory board vote forced Diess to step down following a series of missteps over strategy, delays in key product programs because of software, and communication style.

Sources with knowledge of the matter said the Porsche and Piëch families, who own over half the voting rights and a 31.4 percent equity stake in Volkswagen, also pressed for a change at the top.

Diess' abrupt ouster followed slow progress developing core software, overseen by a new unit, Cariad, that will be the cornerstone of the company’s next wave of electric vehicles. The Cariad software group, directly managed by Diess, has faced ongoing troubles ranging from management and staff infighting, and key operating features that were routinely behind schedule.

The software delays have prompted VW Group to postpone the sales launch of key Audi and Porsche models, raising questions, notably among the Porsche and Piëch families, about Diess’s ability to meet strategic targets, The Wall Street Journal reported, citing people close to the matter.

"Diess was incorrigible. He significantly changed Volkswagen - for the better. But his communication was miserable," one source said, asking not to be named.

VW’s board is betting Blume will be a more collaborative and stable leader, according to people familiar with the matter, who asked not to be identified discussing private deliberations.

Blume, who will continue his role as the head of the Porsche brand, will be flanked by VW’s current Chief Financial Officer, Arno Antlitz, who will assume the position of chief operating officer. 

The changes are effective Sept. 1, VW said.

Blume will be the company’s fourth CEO since 2015.

“The timing is unfortunate and another illustration of dysfunction at VW,” Jefferies analyst Philippe Houchois wrote in a report. “We have been here before, with new management or a crisis bringing hopes of change.”

Blume's appointment heralds a change in management style at the German auto giant that is expected to replace the erratic and unpredictable attitude of his predecessor with a more team-based culture.

A long-time Volkswagen executive who joined the carmaker in 1994, Blume has hammered home the importance of teamwork and tapping workers in the decision-making process in nearly every interview he has given - a contrast to Diess' confrontational attitude.

"Oliver Blume is a team player, who does not push himself into the limelight," a source close to Blume said. But if there is no consensus, he is not afraid to have the last word, the person said.

Diess' future at Volkswagen has been in doubt on multiple occasions during his four-year stint as CEO, most recently late last year over clashes with the company's powerful works council about his electrification strategy and management style.

His departure comes as the company is pushing to beat Tesla to become the world's top electric vehicle maker, catch up on software and execute an IPO for Porsche.

Diess, in a LinkedIn post before the announcement of his departure, said: "After a really stressful first half of 2022 many of us are looking forward to a well-deserved summer break."

"My focus will be on the customers, brands and products," Blume said in a statement.

Diess, 63, becomes the latest in a long line of leaders undone by VW’s complex hodgepodge of power centers. Skirmishes between the manufacturer’s controlling shareholder family, trade union and the German state of Lower Saxony that holds a significant stake have undermined performance and ended careers.

“Herbert Diess has strategically geared Volkswagen group toward electromobility,” Wolfgang Porsche and Hans-Michel Piech, leaders of the family with majority voting rights at VW, said in a joint statement. “It is to his particular credit that the Volkswagen group today is in a strong position for further transformation.”

Diess was hired away from BMW Group in 2015, shortly before VW admitted to rigging millions of diesel vehicles to skirt emissions rules. He’s arguably pushed the most aggressive electrification effort among legacy car manufacturers, earning plaudits from the likes of Tesla Inc. boss Elon Musk.

Some analysts on Friday raised alarm about the management changes.

“The hope of the supervisory board must be for new group CEO Blume to have more success in guiding the software strategy of the group,” Bernstein Research analyst Daniel Roeska said in a note Friday. “However, it will take months to come up with a new plan, and creating unrest as the group is heading into a challenging 2023 is the wrong time, in our view.”

Blume's dual role leading VW Group and Porsche could "make a bad governance situation worse," analyst Daniel Roeska of Bernstein Research warned. "We do not think investors will like the CEO-dilution... especially if the IPO was supposed to create greater independence from the Volkswagen Group," he said.

Volkswagen executives have pegged a possible IPO of Porsche as a means to fund its makeover as an electrification-oriented carmaker spanning software, batteries and cars, though poor market conditions mean a listing could bring in billions less than originally hoped.

"I know Blume always also pushed for the IPO. So don’t think they’ll reverse the decision," a source close to preparations for the listings said.

Blume, 54, has been touted as a potential successor to Diess for some time, even though any changeover was seen some time off after the outgoing CEO’s contract was extended until 2025. Blume started at VW as a trainee at Audi, then rose through the ranks at Seat and the VW brand before joining Porsche in 2013 as head of production.

He managed to largely contain Porsche’s involvement in VW’s diesel-emissions scandal. The sports-car maker received diesel engines from sister brand Audi, which didn’t comply with emission regulations.

Blume started at VW as a trainee at Audi, then rose through the ranks at Seat and the company’s namesake brand before joining Porsche in 2013 as head of production. He managed to largely contain Porsche’s involvement in the diesel-emissions scandal that cost the manufacturer more than 30 billion euros ($30.7 billion).

Diess initiated an ambitious push into battery-cell production and got backing for the IPO of Porsche, which is planned for the fourth quarter. At the same time, he occasionally allowed friction with VW’s unions and other stakeholders to spill over into public. He likened VW to a “tanker” with “old, encrusted structures” in need of breaking up, vowing to modernize the company and move more quickly.

VW’s efforts to develop its own software also has been plagued by internal wrangling and delayed important projects, including a line of next-generation Audi EVs and an updated Porsche Macan.

While Diess enjoyed wide-ranging support among analysts and investors, VW’s stock price has languished in recent months. Its preferred shares have declined 24 percent this year, dropping the company’s market value below 84 billion euros, a far cry from a target of 200 billion euros mapped out in 2019.

Blume will be left with the unfinished business of reviving VW’s relevance in the U.S. Diess had set a target to double market share in the country and planned to spend $1 billion reviving the Scout brand as a maker of electric SUV and pickup models to take on the likes of Ford Motor Co., General Motors and Rivian Automotive Inc.

The VW brand, which swung to profitability in the U.S. last year, has long struggled due to the lack of popular SUVs and crossovers. In March, VW pledged $7.1 billion over the next five years toward improving its U.S. lineup and boosting battery research and manufacturing capabilities.

VW’s board convened this week in Chattanooga, Tenn., where the automaker produces Atlas crossovers and the electric ID4. Scott Keogh, who returned the VW brand to profitability for the first time in years, was tapped to head the Scout brand, while Pablo Di Si, an Argentine in charge of VW South America, was named Keogh’s successor as head of the Americas.

Bloomberg, Reuters and David Phillips contributed to this report.